How the Levered Free Cash Flow Calculator works
Levered free cash flow (LFCF) is the cash a business generates after paying operating expenses, reinvesting in the business through capital expenditures, funding working capital needs, paying cash taxes, and meeting its debt obligations — both interest and scheduled principal repayments. What is left over is available to equity holders: for dividends, share buybacks, discretionary debt paydown, or simply building cash reserves. This calculator applies the standard build used in credit analysis, leveraged buyout (LBO) modeling, and dividend-capacity reviews.
The formula
Starting from EBITDA (earnings before interest, taxes, depreciation, and amortization), levered free cash flow is:
LFCF = EBITDA − CapEx − ΔNWC − Interest Expense − Mandatory Debt Repayment − Cash Taxes
where ΔNWC is the change in net working capital. An increase in working capital consumes cash and is entered as a positive number; a decrease releases cash and is entered as a negative number. The calculator also reports unlevered free cash flow — EBITDA minus CapEx, ΔNWC, and cash taxes, before any debt service — so you can see how much of the cash flow debt obligations consume.
Worked example
Take a company with $5,000,000 of EBITDA, $800,000 of capital expenditures, a $200,000 increase in net working capital, $500,000 of cash interest expense, $400,000 of mandatory debt repayment, and $600,000 of cash taxes paid. Unlevered free cash flow is $5,000,000 − $800,000 − $200,000 − $600,000 = $3,400,000. Total debt service is $500,000 + $400,000 = $900,000, so levered free cash flow is $3,400,000 − $900,000 = $2,500,000 — a 50% LFCF margin on EBITDA.
Why lenders and buyers watch this number
- Debt capacity: lenders size term loans and covenants around how much levered free cash flow a borrower can sustain, since it is the cash actually available to service additional debt.
- LBO returns: in a leveraged buyout, levered free cash flow drives how quickly acquisition debt can be paid down, which directly affects equity returns at exit.
- Dividend and buyback capacity: for public companies, levered free cash flow — not net income — is the practical ceiling on sustainable shareholder distributions once debt obligations are met.
What moves the result most
EBITDA and capital expenditures typically have the largest impact, since both scale with the size of the business. Working capital changes are often the least predictable line — seasonal inventory builds or a slowdown in customer collections can swing net working capital significantly from one period to the next. Mandatory debt repayment is fixed by the loan agreement or bond indenture and does not flex with performance, which is exactly why a thin LFCF margin is a warning sign: there is little room to absorb an EBITDA miss without missing a payment.
Assumptions and limits
This calculator treats each input as a single-period figure you supply — it does not forecast EBITDA growth, project future capital spending, or model covenant step-downs over time. Cash taxes and cash interest should reflect amounts actually paid in the period, not the accrual-basis expense on the income statement, since the goal is a cash-based measure. For a business with volatile working capital or lumpy capital spending, run the calculation across several periods and look at the trend rather than relying on a single year's inputs.